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Government faces post-budget criticism over IR35 and Loan Charge

MP David Davis calls out failure to address “barbaric” Loan Charge or IR35 during Spring Budget

The government has come under fire from one of its longest-serving MPs over its failure to address IR35, the Loan Charge – and the impact of both – at the Spring Budget last week. 

As the government approaches the end of its parliamentary term – and with a general election expected this year, rather than its latest possible date of 28th January 2025 – wide-ranging tax cuts were considered essential at the Spring Budget.

However, the Chancellor offered up a limited package of measures that stand to benefit permanent employees and sole traders more than contractors or freelancers.

The headline tax cut was to National Insurance, further reforming an area which had seen cuts during the Autumn Statement

There was little in the way of meaningful change announced for contractors, with IR35 and the controversial Loan Charge going unmentioned altogether.


IR35’s ‘oppressive’ impact ignored by Chancellor

Following the budget, MPs debated it. While welcoming the changes introduced – among them an increase to the VAT registration threshold – some MPs highlighted concerns that it did not address key challenges facing many independent workers. 

This included David Davis, who has been a longstanding critic of IR35 and the off-payroll rules.

“At every budget, I have raised the question of IR35, which is oppressive on small businesses and the self-employed. It drives people out of the country; the Public Accounts Committee is looking into that issue and I hope it will come up with a conclusion sometime soon”, he said.

“I will keep at the Government to deal with IR35 and the related issue of the Loan Charge. Frankly, HMRC is behaving in a barbaric manner”, Davis added. He went on to liken the Loan Charge to the Post Office Horizon scandal, becoming just the latest MP to make the connection between the two.

Davis also suggested that the Chancellor’s decision to cut national insurance over income tax because it would prove “less inflationary” was “bogus nonsense”. 

He explained his preference would have been a cut to income tax because it would have helped to “keep highly skilled and capable people, who we do not want to retire, in the workforce”. 


Employees prioritised over self-employed, says IPSE

Echoing some of Davis’s concerns, IPSE has also published its reaction to the budget, highlighting where the Chancellor could have done more for contractors and the self-employed.

Writing on the IPSE website, Fred Hicks – Senior Policy & Communications Advisor for the body – said the budget had focused on getting more people “into paid employment… at the expense of finding ways to encourage people to take on self-employment”.

“Cutting National Insurance and raising the VAT threshold may make work more rewarding for those already doing it”, Hicks wrote. 

At the same time, the government missed an opportunity to address “the flaws in the IR35 and off-payroll working rules”, which “convinced many contractors to close their businesses and retire early”.

Hicks went on to suggest that the government should also have raised the Trading Allowance – “currently set at a tiny £1000” – which could help to encourage people to “turn an unofficial hobby business into something more significant”.

“If the Chancellor is serious about using budgets to boost the number of people in work, these ideas and more could and should, in IPSE’s view, form a key part of it”, he concluded.

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